Economy grows at only 1.5%. Liberal/socialist economics continue to fail.

Inventories hurt U.S. third-quarter GDP, domestic demand strong

By By Lucia Mutikani | Reuters

A crane flies an American flag over a construction site in downtown Los Angeles, California October 29, 2014. REUTERS/Mike Blake

WASHINGTON (Reuters) – U.S. economic growth braked sharply in the third quarter as businesses cut back on restocking warehouses to work off an inventory glut, but solid domestic demand could encourage the Federal Reserve to raise interest rates in December.

Gross domestic product increased at a 1.5 percent annual rate after expanding at a 3.9 percent clip in the second quarter, the Commerce Department said on Thursday.

The inventory drag, however, is likely to be temporary and economists expect growth to pick up in the fourth quarter given strong domestic fundamentals.

The Fed on Wednesday described the economy as expanding at a “moderate” pace and put a December rate hike on the table with a direct reference to its next policy meeting. The U.S. central bank has kept benchmark overnight interest rates near zero since December 2008.

“Underlying growth is still strong, or at least, strong enough to handle interest rates not being at emergency low levels anymore,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. Prices for U.S. Treasury debt fell on the data, while the dollar trimmed losses against a basket of currencies.

The economy has struggled to sustain a faster pace of growth since the end of the 2007-2009 recession, with average yearly growth failing to break above 2.5 percent. Economists had forecast GDP rising at a 1.6 percent rate in the third quarter.

Businesses accumulated $56.8 billion worth of inventory in the third quarter, the smallest since the first quarter of 2014 and down sharply from $113.5 billion in the April-June period. There were declines in manufacturing, wholesale and retail inventories.

The small inventory build sliced off 1.44 percentage points from third-quarter GDP growth, the largest since the fourth quarter of 2012.

“That inventory drawdown represents a bit of a healthy purge that should set the economy up for stronger growth in the coming quarters,” said Jim Baird, partner and chief investment officer for Plante Moran Financial Advisors in Kalamazoo, Michigan.

CONSUMERS SAVE THE DAY

The blow from inventories was, however, blunted by bullish consumers, who are getting a tailwind from cheaper gasoline and firming housing and labor markets.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 3.2 percent rate after expanding at a 3.6 percent pace in the second quarter. A measure of private domestic demand, which excludes trade, inventories and government spending, rose at a sturdy 3.2 percent pace.

Spending is likely to remain supported by a fairly healthy labor market and low inflation, which is boosting household purchasing power. Income at the disposal of households increased 3.5 percent in the third quarter after rising 1.2 percent in the prior quarter.

A separate report from the Labor Department showed new applications for unemployment benefits hovering near levels last seen in late 1973.

With the dollar continuing to strengthen, export growth decelerated in the third quarter. The drag was, however, offset by a slowdown in imports, especially automobiles, leaving the impact from trade on GDP growth neutral.

Ongoing spending cuts in the energy sector also undermined growth. A plunge in oil prices has prompted oil field companies like Schlumberger and Halliburton to slash investment.

Schlumberger said this month it did not expect a recovery in demand before 2017 and anticipated that exploration and production spending would fall again in 2016.

Spending on mining exploration, wells and shafts tumbled at a 46.9 percent rate. This category dropped at a 68 percent pace in the second quarter. Investment on nonresidential structures contracted at a 4.0 percent pace, also weighed down by weak spending on commercial and healthcare structures.

The personal consumption expenditures (PCE) price index roseat a 1.2 percent rate after rising 2.2 percent in the second quarter. Excluding food and energy, prices increased at a 1.3 percent pace, slowing from a 1.9 percent rate in the second quarter.

Quotes & Notes

"Terrorism flourishes because they are protected by a Left-wing denial industry" . --- author unknown

"Facts are rarely allowed to contaminate the big-government utopian delusion of the Left" -- author unknown

"Without double standards, the Left/Statists/Liberals would have no standards at all" -- author unknown

"The champions of socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement. They call themselves liberals, but they are intent upon abolishing liberty. They call themselves democrats, but they yearn for dictatorship. They call themselves revolutionaries, but they want to make the government omnipotent. They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but one a subordinate clerk in a bureau. What an alluring utopia! What a noble cause to fight!" -- Ludwig von Mises (1881-1973) Economist and social philosopher

"And what is Fascism? Fascism is private ownership, private enterprise, but total government control and regulation. Well, isn’t this the liberal philosophy?

Liberals value theory over truth and facts

The conservative, so-called, is the one that says ‘less government, get off my back, get out of my pocket, and let me have more control of my own destiny.'" -Ronald Reagan

"Liberals sense of moral righteousness doesn't come from achievement - it comes from believing that you are a bad person... for a Liberal to be morally superior, they must paint Conservatives as morally inferior, even if they have to lie. It's an unearned sense of moral superiority."

"The left no longer makes arguments about policies' effectiveness. Their only argument is character assassination"

"The religion of Leftism supersedes the law, fairness or personal integrity."

"...liberals are big fans of freedom speech, freedom of expression, freedom of anything and everything - unless, of course, they disagree with whatever the “anything or everything” is." - Adam Corolla

"I have never understood why it is 'greed' to want to keep money you've earned, but not greed to want to take someone else's money". - Thomas Sowell

"Have I not destroyed my enemy when I have made him into my friend?" -Abraham Lincoln

"The most intolerant people I've ever met are those Liberals who consider themselves most tolerant." -MB

"Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children’s children what it was once like in the United States where men were free."

"Well, the trouble with our liberal friends is not that they are ignorant, but that they know so much that isn’t so." -Ronald Reagan

"The problem with Socialism (Liberalism) is that eventually, you run out of other peoples money" - Margaret Thatcher

"If you think criminals and lunatics are going to obey gun control laws, you're a special kind of stupid" -MB

"One thing you have to say about the Left: They never miss an opportunity to let the mask of hatred slip. It’s practically Pavlovian; they are so invested in the myth of their own righteousness that their “tolerance” fetish goes right out the window whenever they suffer the slightest affront to their delusional notion of how the world works." - Michael Walsh